Britain's RBS launches digital bank Bó to take on start-ups

* Bó aims to attract customers with limited savings

* Online venture already targeted by fraudsters

* RBS hopes venture will provide cheaper deposit funding

By Iain Withers

LONDON, Nov 27 (Reuters) - Royal Bank of Scotland has launched its standalone digital bank Bó in a plan to fend off competition from fast-growing online start-ups including Monzo and Starling.

The Bó app is designed to encourage people to budget and save better, alerting them if they overspend. It will target the 16.8 million Britons with savings less than 100 pounds ($128).

Bó Chief Executive Mark Bailie told reporters on Wednesday the venture could offer its parent cheaper funding by amassing customer deposits on its lower cost banking platform, although he did not say how much the bank had spent on the project.

Britain's other big banks have also been investing in developing new or refreshed digital services.

RBS, still majority state owned after a bailout in the 2008 financial crisis, has opted to launch a spin-out service, wagering that some consumers are tired of established brands. Its biggest brand, NatWest, has 16 million customers.

Bailie said Bó aimed to attract what he described as a "material" number of customers relative to NatWest within five years. "A few hundred thousand customers doesn't make any difference to the bank," he said, without giving a precise target.

Recent switching data has shown start-ups Monzo and Starling picked up thousands of customers from rivals this year, although Nationwide, HSBC and NatWest still topped the tables in the third quarter.

Bó's launch comes as consumer group Which? published research showing RBS was among the worst lenders for IT glitches in Britain in the last year.

The public has been able to access Bó since Nov. 14 after a testing phase involving around 3,500 customers, most of them NatWest employees. Bó, which will not offer interest on deposits, will begin advertising in January.

It has already been targeted by fraudsters seeking to take advantage of any weaknesses in the new company's digital defences, prompting the bank to draft in help from its parent.

"We're blocking them at the front door," Bailie said, adding such attacks were expected for new online ventures.

Bailie said Bó, which offers similar functions to other digital banks, would differentiate itself with its focus on helping customers budget better.

Bó analysed 1.5 billion pieces of NatWest data to help understand spending habits.

"We've got a big data set, and the data set says that customers have a broken relationship with money," Bailie said.

($1 = 0.7794 pounds) (Reporting by Iain Withers; Editing by Sinead Cruise and Edmund Blair)